Anyone who has ever had an unexpected medical emergency understands how quickly your life can be upended. With such an event comes the overwhelming physical and emotional challenges.
But another stressor comes along that lasts long after the emergency is over. Individuals find themselves struggling with hospital bills, specialist fees, prescription expenses and lost income from time away from work. Even with health insurance, medical debt can become impossible to manage. For some people, bankruptcy may provide a path toward financial recovery.
A fresh start after a crisis
Medical emergencies are a common cause of financial distress in the United States. Costs add up quickly, especially when treatment requires hospitalization, ongoing care or a long recovery period.
At the same time, the ill or injured individual may be off work for several weeks or months. The combination of unexpected expenses and reduced income can create financial pressure.
Even financially stable households may find themselves relying on credit cards, personal loans or retirement savings to cover daily expenses.
It’s important to understand that medical debt is generally considered unsecured debt, meaning it isn’t tied to collateral such as a home or vehicle. Therefore, it may be dischargeable in bankruptcy.
There are two main types of personal bankruptcy:
Chapter 7 is often referred to as a liquidation bankruptcy. For households that pass the means test, Chapter 7 may provide relief by eliminating qualifying medical debt. It stops the collection calls and letters and halts wage garnishments in many situations.
Chapter 13 allows individuals to reorganize their debts through a court-approved repayment plan. This option can be helpful for homeowners who have fallen behind on mortgage payments or who want to protect their assets. At the end of a successful Chapter 13 plan, some remaining unsecured debts may be discharged.
One of the most stressful aspects of overwhelming debt is the collection calls and letters, wage garnishments and threats of lawsuits. Once an individual files for bankruptcy, an automatic stay is imposed, generally prohibiting creditors from continuing collection efforts.
Not every person with medical debt needs to file for bankruptcy. But when medical bills become unmanageable and creditors aggressively pursue collection, it’s essential to know that bankruptcy is a legal option that can provide relief and offer a fresh financial start.